In early trading gold was up $8.23 to $1,711.60 and silver was up $0.23 to $33.30, for a silver/gold ratio of 51.4.

It was a rally day for most industrial commodities with gold and silver being joined higher by crude oil, platinum, palladium and copper.

Given the amount of currency being pumped into global markets by central banks one would expect rampant inflation, which is something that would lift commodity prices, but we’re just not seeing it. The lack of either decisive inflation or deflation puts the banks in a quandary because, quite literally, they’re running out of excuses to print money. Most central banks have had to switch from an emphasis on currency policy to considering employment, economic growth and financial stability.

Largely as a consequence of tame inflation we saw gold prices top out in 2011 and remain basically flat ever since. But it’s kind of like a cartoon character running over the edge of a cliff; the realization that there is nothing underneath them comes as a surprise.

We saw the same thing in 2005 in the real estate market. Valuations were insane, people of relatively modest means were getting wrap-around mortgages for homes priced north of $400,000 in areas that didn’t have the jobs base to support those home values.

I warned my real estate customers and cautioned them to stick to moderately priced homes they could afford. My reward for that advice was watching them jump ship to other agents willing to sell them more house than they could afford. It took a surprisingly long time for the mortgage crisis to actually catch up to the real estate market and freeze credit markets.

Likewise I believe the currency policies we see in most central banks will be the next bubble to burst. Like the housing market things will get bad but I don’t believe the global economy will implode. Countries are not going to default when their central bank can print virtually endless quantities of cash.

In response to the mortgage meltdown my wife and I opted out of the housing market. Likewise, you can opt out of currency follies by keeping a percentage of your wealth in hard assets like gold and silver.

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